IN THE SUPREME COURT OF THE STATE OF OREGON

Ronald Doyle, Robert Deuel, Benedict Miller, and Charles Steinberg,

Plaintiffs-Appellants,

v.

City of Medford, an Oregon municipal corporation, and Michael Dyal, City Manger of the City of Medford, in his official capacity and as an Individual,

) ) ) ) ) ) ) ) ) ) ) ) ) )

Defendants-Respondents. )

Ninth Circuit Court of Appeals Case No. 07-35753

S057330

057330

ANSWERING BRIEF OF DEFENDANTS-RESPONDENTS AND SUPPLEMENT ALEXCERPT OF RECORD

Certified Questions from the United States Court of Appeals for the Ninth Circuit

Susan P. Graber, Raymond C. Fisher, and Milan D. Smith, Jr., Circuit Judges

LA W OFFICE OF ROBERT E. FRANZ, JR. Robert E. Franz, Jr. OSB #73091 Jerome P. Larkin OSB #83269 P.O. Box 62 Springfield, OR 97477 E-Mail: robertfranz@qwestoffice.net Telephone: (541) 741-8220 Facsimile: (541) 741-8234

Attorneys for Defendants-Respondents

Stephen L. Brischetto OSB #78156 Attorney at Law 621 S.W. Morrison St., Ste. 1025 Portland, OR 97205 E-Mail: slb@brischettolaw.com Telephone: (503) 223-5814 Facsimile: (503) 228-1317

Attorneys for Plaintiffs-Appellants

George P. Fisher OSB #91043 Attorney at Law 3635 S.W. Dosch Road Portland, OR 97239 E-Mail: george.fisher@gpf-law.com Telephone: (503) 224-7730 Facsimile: (503) 227-2429

Attorneys for Plaintiffs-Appellants

August, 2009

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TABLE OF CONTENTS

I. Statement of the Case ...................................................................................... I

A. Nature ofthe Case and the Course of the Proceedings .......................... 1

B. Nature of the Judgment. ........................................................................ 2

C. Basis for Appellate Jurisdiction and Effective Date for AppeaL ........... 2

D. Certified Question ................................................................................. 2

II. Summary of Arguments ................................................................................... 2

III. Summary of Material Facts .............................................................................. 4

IV. Argument on Certified Question ...................................................................... 9

A. Why Are We Here? .............................................................................. 9

B. The Discretionary Nature of Selecting Health Care Benefits ............... 10

C. Answer to Certified Question .............................................................. 14

D. ORS 243.303(2) Does Not Create a Protected Property Interest.. ........ 15

E. Legislative History of ORS 243.303(2) ............................................... 18

F. Lack of Enforcement Provisions in ORS 243.303 or Anywhere Else .. 30

G. ORS 243.303(2) Does Not Govern Selection of Employee Health Care Coverage ......................................................................... 31

H. Preemption by ERISA ........................................................................ 37

I. PERS is the Only Statutory Contract Binding Upon the City .............. 44

V. Conclusion .................................................................................................... 45

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TABLE OF AUTHORITIES

Cases

Aetna Health Inc. v. Davila, 542 U.S. 200, 208, 124 S. Ct. 2488, 159 L.Ed.2d 312 (2004) ..................................................................... 37

Ahern v. Oregon Public Employees Union, 329 Or. 428, 988 P.2d 364 (1999) .......................................................................... 35

Arizona State Carpenters Pension Trust Fund v. CWbank, (Arizona), 125 F.3d 715, 722 (9th Cir. 1997) .................................................. 42-43

Assoc. of Oregon Corrections Employees v. Dept. of Corrections, 213 Or. App. 648, 662, 164 P.3d 291 (2007) ..................................... 34

Board of Regents v. Roth, 408 U.S. 564, 577 (1972) ....................................... 9

Bolt v. Influence, Inc., 333 Or. 572, 581, 43 P.3d 425 (2002) ....................... 17

Bui v. American Telephone & Telegraph Co., Inc., 310 F.3d 1143, 1151 (9th Cir. 2002) ................................................... 43

Cal. Div. of Labor Standards Enforcement v. Dillingham Constr., NA., Inc. ("Dillingham "),519 U.S. 316, 324,117 S. Ct. 832, 136 L.Ed.2d 791 (1997) ................................................................ 40-41

Campbell v. Aldrich, 159 Or. 208, 79 P.2d 257 (1938) ................................. 45

Central Catholic Educ. Ass 'n. v. Archdiocese of Portland, 323 Or. 238,243,916 P.2d 303 (1996) .............................................. 44

Colbert v. Young, 834 F.2d 624, 628 (th Cir. 1987), cert. denied, 485 U.S. 990, 108 Sect. 1296, 99 L.Ed.2d 506 (1988) ......................................................................... 9

Coyne & Delany Co. v. Selman, 98 F.3d 1457 (4th Cir. 1996) ....................... 43

District of Columbia v. Greater Washington Bd. of Trade, 506 U.S. 125, 113 S. Ct. 580, 121 L.Ed.2d 513 (1992) ...................... 41

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Cases

Doyle v. City o/Med/ord, 565 F.3d 536 (9th Cir. 2009) .................. 2, 34,38,41

Eckles v. State a/Oregon, 306 Or. 380, 760 P.2d 846 (1988) ....................... 45

Foss v. National Marine Fisheries Service, 161 F.3d 584, 588 (9th Cir. 1998) ......................................................... 9

Gen. Am. Life Ins. Co. v. Castonguay, 984 F.2d 1518, 1521 (9th Cir. 1993) .. 42

Griffeth v. Detrich, 603 F.2d 118, 120-21 (9th Cir. 1979), cert. denied, 445 U.S. 970, 100 S. ct. 1348, 64 L.Ed.2d 247 (1980) ......................................................................... 9

Hewitt v. Helms, 459 U.S. 460, 466-67, 103 Sect. 864, 74 L.Ed.2d 675 (1983), overruled in part by Sanding v. Conner, 515 U.S. 483, 484, 115 Sect. 2293, 132 L.Ed.2d 418 (1995) (Sanding holding explicitly limited to the context of prison rerulations, see Chaney v. Stewart, 156 F.3d 921,930 n. 6 (9t Cir. 1998)) ................................................. 9

Hughes v. State a/Oregon, 314 Or. 1,25,838 P.2d 1018 (1992) .................. 44

Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 111 S. Ct. 478, 112 L.Ed.2d 474 (1990) ....................................... 41-42

International Broth. of Elec. Workers Local No. 48 v. Oregon Steel, 168 Or. App. 101, 111, 5 P.3d 1122 (2000) ....................................... 41

Liberty Northwest Insurance Corp. v. Kemp, 192 Or. App. 181, 190-91, 85 P.3d 871 (2004) ............................................................................ 42

MEv. Board a/Higher Education, 31 Or. App. 251,255, 570 P.2d 388 (1977) .......................................................................... 34

Mackey v. Lanier Collection Agency, 486 U.S. 825, 108 S. Ct. 2182, 100 L.Ed.2d 836 (1988) ................................................................ 41-42

Natale v. Ridgefield, 170 F.3d 258, 263 (2nd Cir. 1999) ................................ 10

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Cases

New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645,657, 115 S. Ct. 1671, 131 L.Ed.2d 695 (1995) ................................................................ 42-43

Newsom v. McElhinney, 1990 WL 6813 (N.D. Ill, 1990) .............................. 10

PGE v. Bureau of Labor and Industries, 317 Or. 606, 610-12, 859 P.2d 1143 (1993) ............................................................. 15-16,30

Quail Hollow West Owners Asps' v. Brownstone Quail Hollow, LLC, 206 Or. App. 321,336-37, 136 P.3d 1139 (2006) .............................. 30

Quintero v. Board of Parole, 329 Or. 319, 324,986 P.2d 575 (1999) ........... 33

Rutledge v. Seyfarth, Shaw, Fairweather & Geraldson, 201 F.3d 1212, 1217 (9th Cir. 2000) ................................................... 43

Service Employees Int'l Union Local 503 v. DAS, 183 Or. App. 594, 598, 54 P.3d 1043 (2002) ................................ 34-35

Shaw v. PACC Health Plan, Inc., 322 Or. 392,400, 908 P.2d 308 (1995) .......................................................................... 38

Springfield Ed. Assn. v. Sch. Dist., 24 Or. App. 751, 756, 547 P.2d 647 (1976) .......................................................................... 34

State ex rei Dept. ofTransp. v. Stallcup, 341 Or. 93, 101, 138 P.3d 9 (2006) .................................................... 33

State ex rei. Dewberry v. Kulongoski, 346 Or. 260, 270, 210 P.3d 884 (2009) .......................................................................... 15

State v. Gaines, 346 Or. 160, 206 P.3d 1042 (2009) ................................ 16, 18

State v. Werdell, 340 Or. 590, 596, 136 P.3d 17 (2006) ................................ 17

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Thomas Creek Lumber and Log Co. v. Department of Revenue, 344 Or. 131, 137-38, 178 P.3d 217 (2008) ......................................... 43

Town of Castle Rock, Colo. v. Gonzales, 545 U.S. 748, 763, 125 S. Ct. 2796, 2807, 162 L.Ed.2d 658 (2005) .............................. 9-10

Vaughn v. Pacific Northwest Bell Telephone, 289 Or. 73,83,611 P.2d 281 (1980) .................................................. 44

Wallace v. Robinson, 940 F.2d 243 (7th Cir. 1991) ....................................... 10

Oregon Administrative Rules

OAR 459-035-0000 ............................................................................. 3, 14,44

OAR 459-035-0020 ............................................................................. 3, 14,44

OAR 459-035-0070 ............................................................................. 3, 14,44

OAR 459-035-0200 ............................................................................. 3, 14,44

Oregon Constitution

Oregon Constitution, Article IV, § 28 ........................................................... 24

Oregon Laws

Or. Laws 1981, ch. 240 § 1 ..................................................................... 19, 24

Or. Laws 1981, Vol. I, Foreword, p. iii.. ...................................................... 24

Or. Laws 2001, ch. 438 § 1 .......................................................................... 16

City of Medford Resolution No. 5715 ............................................................ 1

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Other

House Committee on Intergovernmental Affairs, April 22, 1981, State Archives Tape 86B .................................................. .20-22, 28, 31

House Committee on Intergovernmental Affairs, April 22, 1981, State Archives Tape 87 A ........................................................ 19-20, 28

House Committee on Intergovernmental Affairs, April 22, 1981, State Archives Tape 87B ........................................................ 22, 29, 31

House Committee on Intergovernmental Affairs, May 4, 1981, State Archives Tape 102B ................................................................. 23

House Committee on Intergovernmental Affairs, March 26, 1985, Tape 97 ........................................................ 25-26, 32

House Floor Session, Oregon State Archives, Reel 7, Track I. ..................... 26

Senate Committee on Business Housing and Finance; April 16, 1985, State Archives Tape 57B ........................................... 27

Senate Committee on Business Housing and Finance; May 14, 1985, Tape 91A ................................................................... 27

Senate Committee on Local Government, Urban Affairs and Housing, June 1, 1981, State Archives Tape 85A ........................................ 23-24

Senate Floor Proceedings, June 12, 1981, State Archives Tape 114B ........... 24

Senate Floor Proceedings, June 28, 1983, Tape 153B ................................... 24

Senate Floor Proceedings, May 22, 1985, Tape 124B ................................... 27

Statutory Provisions

29 U.S.C. § 623 .............................................................................................. I

29 U.S.C. § 1002(1) ................................................................................ 37, 41

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Statutory Provisions

29 U.S.C. § 1002(3) ..................................................................................... 37

29 U.S.C. § 1 003(b) ..................................................................................... 38

29 U.S.C. § 1 003(32) .............................................................................. 38, 40

29 U.S.C. § 1144(a) ........................................................................... 37, 40-41

42 U.S.C. § 1983 ............................................................................................ 1

ORS 28.200 .................................................................................................... 2

ORS 174.010 ................................................................................ 16-17,37,43

ORS 174.020 ........................................................................................... 16, 18

ORS 238.410 .................................................................. : .................... 3, 14,44

ORS 238.420 ....................................................................................... 3, 14,44

ORS 243.303 ............................. 1-2,4, 14-15, 17, 19,24,30,32,35-37,43-45

ORS 243.303(2) ............................. 3-4, 13-15, 17-18,24,30-33,35-36,42,46

ORS 243.650(7)(a) ....................................................................................... 34

ORS 243.672(1)(e) ....................................................................................... 34

ORS 243.672(3) ........................................................................................... 35

ORS 243.676 ................................................................................................ 35

ORS 659A.030 ............................................................................................... 1

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I. Statement of the Case.

A. Nature of the Case and the Course of the Proceedings.

The plaintiffs filed this lawsuit against the City of Medford, and its City

Manager, Michael Dyal, contending that the City and Dyal are liable to them because

other than what they could obtain by themselves in the marketplace, the only health

care benefits available to them upon their retirement and after the 18-month

mandatory COBRA period expired were the health care benefits provided to them by

PERS (Oregon's Public Employment Retirement System), and not the identical health

care benefits provided to them when they were current employees. The plaintiffs

claim that the failure of the defendants to offer to them the identical health care

benefits that were provided to them when they were current employees within 60 days

after their retirement violated ORS 243.303, and that such a violation have given them

a civil remedy for damages under ORS 243.303 and 42 U.S.C. § 1983.

In the United States District Court for the District of Oregon, the Plaintiffs'

Complaint sets forth five claims for relief; namely, (I) a state tort action based upon

an alleged violation ofORS 243.303, (2) a state tort claim based upon an alleged

violation of City of Medford Resolution No. 5715, (3) a federal Section 1983 due

process claim based upon alleged violations of the Due Process Clause of the

Fourteenth Amendment to the Constitution of the United States, (4) a federal age

discrimination claim based upon an alleged violation of29 U.S.c. § 623; and, (5) a

state age discrimination claim based upon an alleged violation ofORS 659A.030.

The district court granted Defendants' Motion for Summary Judgment on

plaintiffs' federal claims, and dismissed plaintiffs' state claims, with leave for the

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plaintiffs to re-file the state claims in state court. Plaintiffs appealed from the

judgment for defendants on plaintiffs' federal claims to the Ninth Circuit Court of

Appeals. The Ninth Circuit remanded the federal age discrimination claim back to the

district court to allow for further discovery; and certified its question to this Court for

purpose of deciding the pending Due Process Claim.

B. Nature of the Judgment.

The plaintiffs filed their notice of appeal to the Ninth Circuit Court of Appeals

on August 24,2007. On May 4,2009, the Ninth Circuit issued an Order CertifYing its

Question to the Oregon Supreme Court. Doyle v. City of Medford, 565 F.3d 536

(9th Cir. 2009). This Court accepted certification of the question on June 4, 2009.

C. Basis of Appellate Jurisdiction and Effective Date for Appeal.

This case was certified to the Oregon Supreme Court by the Ninth Circuit

Court of Appeals under ORS 28.200. This Court accepted the questions certified to it

by a United States Court of Appeals.

D. Certified Question.

The Supreme Court accepted the following Question: What amount of

discretion does Oregon Revised Statutes Section 243.303 confer on local governments

to determine whether or not to provide health insurance coverage to their employees

after retirement?

II. Summary of Arguments.

ORS 243.303 was enacted to give cities assurance that if cities agreed with

unions to provide health care benefits to retirees, the cities would not be liable for

exceeding their authority. Hence, the statute is entitled: "Authority of local

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government to make health care insurance coverage available." It is a permissive

statute, leaving total discretion to cities, and the unions and cities where the

employees are unionized, to make the determination of what constitutes the best and

most economical health insurance to be provided to current employees, with the

understanding that once the best and most cost effective health care benefits are

provided to current employees, then, to the extent possible, this same insurance will

also be provided to the current employee when he or she retires. By including the

disclaimer "to the extent possible," the drafters of this statute recognized that it may

not always be possible for local governments to make "that coverage" available to

retirees, because the insurer or trust providing employee health care coverage may not

agree to extend "that coverage" to retirees. Nothing in ORS 243.303(2) compels local

governments to obtain health care coverage (new or revised) for its employees from

only those insurers who also agree to provide the same coverage to retirees.

The only vested rights of city public employees in the State of Oregon to health

insurance upon retirement is that required by the statutory contract between cities and

public employees imposed by the PERS statutes. See ORS 238.410, and 238.420, and

OAR 459-035-0000, OAR 459-035-0020, and OAR 459-035-0070, and OAR 459-

035-0200.

The only other contractual obligations binding upon a city in Oregon for health

care benefits to its public employees are those collective bargaining agreements

entered into between the cities and the unions under the collective bargaining laws of

the State of Oregon.

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ORS 243.303 is not, and was never intended to be a third contractual

obligation of a city to provide health care benefits to its public employees when they

retire.

Plaintiffs' proposed construction would render the permissive phrase "insofar

as and to the extent possible" into meaningless surplusage, contrary to the rules of

statutory construction. Plaintiffs' construction ofORS 243.303(2) would also cause it

to be preempted, in whole or in part, by federal legislation - the Employee Retirement

Income Security Act (ERISA) because the statute would bind local governments to

particular choices in selecting providers for an "employee benefit plan" - such as

health care coverage - and such a restriction on plan selection is precisely what

ERISA preempts.

Local government retirees do not have a protected property interest in

continued health care coverage subject to due process protections because their

entitlement to "that coverage" is not determined by the local government, but by the

insurance carrier or trust that provides the current employee health care coverage.

Because the retiree's opportunity to obtain this coverage is controlled by the insurer

or trust and not the local government the entitlement to this benefit is, at best,

vague; and such indeterminacy confirms that the obligations imposed by

ORS 243.303 is not mandatory, but only permissive.

III. Summary of Material Facts.

In this case, two of the plaintiffs, Charles Steinberg and Benedict Miller, were

employees of the City of Medford Police Department and members of the "Teamsters

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Local Union No. 223." The other two plaintiffs, Ron Doyle and Robert Deuel, were

management employees, and not the members of any bargaining group or union.

During the employment of the plaintiffs, pursuant to its statutory contractual

obligation, the City of Medford has contributed to the Oregon Public Employees

Retirement System (PERS), including that portion of PERS that is specifically

reserved so that all retired employees of the City of Medford can enroll into the PERS

Health Insurance Program upon retirement. Thus, each retired member of the City of

Medford can elect, upon retirement, to have health care benefits provided to them

during their retirement by PERS, by enrolling in the PERS Health Insurance Program.

The PERS Health Insurance Program offers health insurance coverage for all retirees,

their spouses and eligible dependents, even if the retired person is not yet Medicare

eligible.

Starting in 1991, and up to today, members of the Teamsters of the Police

Department that were current employees were provided health care benefits by the

Oregon Teamster Employers Trust (OTET). These health care benefits were

negotiated between the Teamsters and the City of Medford under the collective

bargaining statutes of the State of Oregon.

The trust was also willing to provide health care benefits to retired Teamsters,

if the current members of the Teamsters voted for such coverage. At no time have the

members of the Teamsters of the Police Department voted to provide health care

benefits to its retired members; thus, OTET has not provided coverage for health care

benefits to its retired police members other than the period of time required by

COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1985 allows a

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retiree to continue group coverage on a self-pay basis for a period of 18 months

following retirement). Because the retired coverage had to be voted for by the current

members of the Teamsters, it was not possible for the City of Medford to make OTET

provide coverage to the retired Teamsters. Of course even without OTET providing

health care benefits to the retired teamsters, each retired teamster was eligible to

enroll in the PERS Health Insurance Program because of the contributions made to

PERS by the City; or alternatively, each retired teamster could go into the

marketplace and purchase health care insurance.

As to the non-union plaintiffs, Ron Doyle and Robert Deuel, prior to January 1,

2002, the City of Medford contracted with ODS to have ODS provide insurance for

health care benefits for the current employees in the City's non-union management

group. The insurance provided by ODS also allowed a retired employee from the

City's management group to obtain coverage after the employee retired from City.

However, the premium for such coverage had to be paid by the retired employee.

Starting in September of 1999, and ending in August of2000, the City of

Medford paid ODS a monthly premium of $578.65 per employee. During this same

period of time, there was a "cap" of $625 per month per employee. The use of the

term "cap" meant that the City of Medford would pay the monthly premium of the

costs of the health care benefits up to the sum of$625. If the premium for the cost of

the coverage exceeded $625, then the employee and the City would each pay 50% of

the difference. Because the monthly premium of $578.65 did not exceed the cap, no

current employee in the management group had to contribute to the cost of the

monthly premium for the health care benefits for the year ending in August of 2000.

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Thus, for the year September 1, 1999, to August 31,2000, the City of Medford paid a

total of$653,874.50 (94.2 (Avg. # employees) x $578.65 x 12 months) for health and

dental insurance for the employees of the management group.

Starting in October of 2000, and ending in August of 200 1, the City of

Medford paid ODS a monthly premium of $732.54 per employee. (There was one

month, the month of September 2000 that the premium was $766.81). During this

same period of time, there was a "cap" of$625 per month per employee. Because the

monthly premium of$732.54 did exceed the cap, each current employee had to pay

the sum $53.78 each month for the coverage and the City paid the additional sum of

$53.76 for the coverage. Thus, for the year September 1, 2000, to August 31, 2001,

the City of Medford paid a total of$806,228.73, and the employees paid a total of

$63,621.74 for health and dental insurance for the employees of the management

group.

In 2001, ODS gave the City a quote of$926.62 per employee for monthly

premiums for the next policy period for the management group. The total number of

management employees was 97 employees on September 1, 2001. The cap had been

increased to $665. This meant that if the City of Medford stayed with ODS, for the

year September 1, 2001, to August 31, 2002, the City would have paid $926,334.48,

for health and dental insurance for the management group, and the employees of the

management group would have had to pay $152,251.20.

In addition, in 2001, the City received a quote from OTET. OTET had agreed

to provide coverage for the management group pursuant to a subscription agreement

(SER-17), even though the management group could not be members of the

-s-Teamsters. As indicated above, the Teamsters Trust was already providing coverage

to the Police Officers of the City of Medford. Because the employees of the

management group were not, and could not, be a member of the Teamsters, the Trust

would only provide coverage to current, active employees. The trust would not under

any circumstances provide coverage to the retired management employees, other than

as required by COBRA. Thus, it was not possible for the City of Medford to make

OTET provide coverage to retirees of the management group. Of course even without

OTET providing health care benefits to the retired employees of the management

group, each employee was eligible to enroll in the PERS Health Insurance Program

because of the contributions made to PERS by the City, or each employee was free to

go into the marketplace and purchase health care insurance.

The premium required by OTET for the month of January 2002, was the sum

of$524.68, and the premium for the remainder of the calendar year was the sum of

$574.39 per month.

Effective January 1,2002, the management group of the City switched to

OTET. Thus, for the calendar year of 2002, the City of Medford paid a total of

$704,825.91 (calculated on an average of 103 employees) for medical and dental

coverage. Because the monthly premium did not exceed the cap, the employees of the

management group did not have to contribute anything towards the monthly premium

to OTET. The switch to OTET from ODS saved the City of Medford the sum of

$221,50S.57 for the one-year period, and saved the employees of the management

group the sum of $152,251.20 for the one-year period.

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IV. Argument on Certified Question.

A. Why Are We Here?

It is well settled that property interests are not created by federal constitutional

law, but "are created and their dimensions are defined by existing rules or

understandings that stem from an independent source such as state law .... " Board of

Regents v. Roth, 408 U.S. 564, 577 (1972).

Benefit applicants have a property interest subject to due process protections

where the regulations establishing entitlement to the benefits are mandatory in nature.

Foss v. National Marine Fisheries Service, 161 F.3d 584, 588 (9th Cir. 1998), citing

application of Roth in Griffeth v. Detrich, 603 F.2d 118, 120-21 (9th Cir. 1979), cert.

denied, 445 U.S. 970, 100 S. Ct. l348, 64 L.Ed.2d 247 (1980). A law creates an

entitlement interest requiring due process protections only if it uses language of an

unmistakably mandatory character so as to impose a substantive limit on official

discretion. Colbert v. Young, 834 F.2d 624, 628 (7th Cir. 1987), cert. denied, 485 U.S.

990, 108 Sect. 1296,99 L.Ed.2d 506 (1988); citing Hewitt v. Helms, 459 U.S. 460,

466-67, 103 Sect. 864, 74 L.Ed.2d 675 (1983), overruled in part by Sanding v.

Conner, 515 U.S. 483, 484, 115 Sect. 2293, l32 L.Ed.2d 418 (1995) (Sanding holding

explicitly limited to the context of prison regulations, see Chaney v. Stewart, 156 F.3d

921,930 n. 6 (9th Cir. 1998)).

An applicant cannot be "safely deemed 'entitled' to something when the

identify of the alleged entitlement is vague," because "indeterminacy is not the

hallmark ofa duty that is mandatory." Town of Castle Rock, Colo. v. Gonzales, 545

U.S. 748, 763, 125 S. Ct. 2796,2807, 162 L.Ed.2d 658 (2005). Moreover, the

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"uncertainty" that will preclude the existence of a federally protected property interest

is not restricted to the uncertainty that inheres in the exercise of discretion. ld. at 764,

citing with approval Natale v. Ridgefield, 170 F 3d 258, 263 (2nd Cir. 1999).

Courts recognize that the "to the extent possible" language eliminates the

mandatory requirement necessary to create a property interest. As stated in

Newsom v. McElhinney, 1990 WL 6813 (N.D. Ill, 1990):

"The statute provides that the 'Department shall, in so far as possible, employ at useful work committed persons confined in institutions and facilities of the Department. .. .' ld. The phrase 'in so far as possible' provides administrators with broad discretionary authority. As such, the statute lacks mandatory language limiting official discretion and therefore creates no protected property interest."

And as stated in Wallace v. Robinson, 940 F.2d 243 (ih Cir. 1991) at 246:

"Weasel words such as 'in so far as possible' in ~ 1003-12-1 show that Illinois has not assured its inmates any job, let alone the job the inmate prefers."

B. The Discretionary Nature of Selecting Health Care Benefits.

In purchasing health care benefits for a group of employees, there are many

factors to consider. The first and most obvious is the cost. The key is choosing a plan

that meets both the needs of the employees and the budgets of both the employer and

employee. The budget of both the city and the employee is necessary to consider

because many cities bargain with unions for sharing the cost of health care insurance.

And with or without such bargaining, there are many types of cost sharing schemes

like the "cap" system used by the City of Medford.

In addition, one cannot just consider the cost of the premium. Just as important

is the costs directly payable by the employee once the insurance is in place. That is,

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how much of a copayment must the employee make when he goes to the doctor or

buys drugs needs to be considered as well as other questions: Does he have to pay

cash in the amount of $10, $20 or $25 per visit or per purchase? What is the

deductible that has to be paid, and is this deductible an annual deductible? Are there

limits set as to the total amount of benefits that will be paid by the insurance company

each year; and if so, who pays the excess? Is there a specific dollar amount set as a

limit for ones lifetime?

Also, are the direct costs incurred by the employee the amount that will be paid

by the insurance company to the doctor, or does the insurance company invoke the

"usual and customary rate" as the means of determining what is to be paid the doctor?

If so, does the employee have to pay the amount in excess of the "usual and

customary rate?"

Then, of course, once the costs are determined, the next major issue in

determining what is the best insurance is to determine the extent of benefits and the

scope of the coverage for those benefits. It does little good to purchase health

insurance at a low cost ifthe coverage is worthless. So one needs to consider the total

coverages provided, and not just coverage for sickness or injury. So one needs to

determine whether there is coverage for prescription drugs, time loss, loss of life,

accidental death, etc.

On the medical side of benefits, does the insurance cover the cost of preventive

health services (immunizations, prenatal); visits to the office or clinic of health care

professions for medically necessary care; emergency health care services; hospital

care; physician visits during hospital stays; surgery (inpatient and outpatient);

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maternity care; well-baby care; medical tests, x-rays, mental health care~ home health

care, treatment of chemical dependency, mental health conditions, transplants,

chiropractic care, surgical treatment of morbid obesity, etc.? If so, are there any

limitations?

As to prescription drugs, must one use generic drugs? If brand name drugs are

used, what is the consequence: does the copayment go up? What about non-brand

name drugs? Is there a discount for using mail order drug service, if so, what is the

discount amount? Is there a total annual copayment on drugs? That is, once a family

reaches a set amount of copayment, are all copayments from drugs waived for the

remainder of the year? Are there any drugs allowed to be purchased for zero

copayment? What drugs are not allowed: smoking cessation drugs?

In addition are there other benefits to the insurance. Does the plan cover time

loss, if so, what percentage of the employees weekly earnings are paid, and for how

long? Is there a maximum amount to be paid each week, and if so, how much?

Does the plan provide for life insurance, and if so, how much? Is there

accidental death and dismemberment benefits and if so, how much? Are there dental

and vision benefits provided, and if, what is the extent of such coverage?

Also one needs to see the above rules only apply to the employee, and not the

dependants, or do all the benefits apply to all dependants?

Finally, one must be concerned with the conditions of eligibility for the

employee, and for the dependants; and what type of service does each employee get

when a claim is submitted? Are there delays in payments; are the claims processed in

-13-

a professional manner; and is there proper coordination between the provider of the

insurance and the doctors?

All of the above are important factors to consider in selecting insurance for

current employees. These factors need to be decided by the employees, the

employers, and the unions; not the courts or juries.

It is the plaintiffs' position in this case that none of the above factors matter

one bit, and that the current employees have no right to consider the above factors.

According to the plaintiffs, there is only one factor to consider: does the insurance

also cover retirees. If it does not, then you cannot purchase it, regardless of the

coverage and cost. And if it does, you must purchase it, regardless of the coverage

and cost.

Thus, if a city and its employees and their unions are looking at insurance from

companies A, B, and C. And only company C provides the same coverage for current

and retirees, then a city must purchase the insurance from company C, no matter what

it costs and no matter what it provides. This means that a city can push onto unions

and their employees expensive, worthless insurance under the guise that such

insurance is the only one that provides the same coverage for both current and retired

employees. Limiting the purchase of health care benefits to one such arbitrary factor

of the same coverage for both current and retired employees is absurd, lacks common

sense, and is a direct slam on all the hardworking teamsters and public employees of

the City of Medford that need good insurance at a reasonable cost to them. If the

plaintiffs' interpretation ofORS 243.303(2) is correct, then the best remedy for cities

in Oregon is to provide no health care insurance at all to its current employees.

-14-

C. Answer to Certified Question.

ORS 243.303 was enacted to give cities assurance that if cities agreed with

unions to provide health care benefits to retirees, the cities would not be liable for

exceeding their authority. Hence, the statute is entitled: "Authority of local

government to make health care insurance coverage available." It is a permissive

statute leaving total discretion to cities, and the unions where the employees are

unionized, to make the determination of what constitutes the best health insurance to

be provided to current employees, with the understanding that once the best and most

cost effective health care benefits are provided to current employees, that to the extent

possible, this same insurance will also be provided to the current employee when he

or she retires. By including the disclaimer "to the extent possible," the drafters of this

statute recognized that it may not always be possible for local governments to make

"that coverage" available to retirees, because the insurer or plan providing employee

health care coverage may not agree to extend ''that coverage" to retirees. Nothing in

ORS 243.303(2) compels local governments to obtain new or revised health care

coverage for its employees from only those insurers who also agree to provide the

same coverage to retirees.

The only vested rights of public employees in the State of Oregon to health

insurance is that provided by the statutory contract between the state and its political

subdivisions and public employees as provided in the PERS statutes. See ORS

238.410, and 238.420, and OAR 459-035-0000, OAR 459-035-0020, and OAR 459-

035-0070, and OAR 459-035-0200.

-15-

The only other contractual obligations binding upon a city in Oregon for health

care benefits are those collective bargaining agreements entered into between the

cities and the unions under the collective bargaining laws of the State of Oregon.

ORS 243.303 is not and was never intended to be a third contractual obligation of a

city and its employees.

D. ORS 243.303(2) Does Not Create a Protected Property Interest.

ORS 243.303 dos not create a property interest protected by due process

guarantees because it does not create a mandatory duty to provide city retirees with

health care insurance until they become eligible for federal Medicare coverage.

In ORS 243.303(2), the phrase "to the extent possible" qualifies the mandatory

effect of the verb "shall * * * make" in defining the when the local government is to

make available to retirees the same "health care insurance coverage" that it makes

available to officers and employees. To determine the legislative intent in adopting

this provision, the Supreme Court applies the statutory construction methodology first

set forth in PGE v. Bureau a/Labor and Industries, 317 Or. 606, 610-12, 859 P.2d

1143 (1993). As originally outlined in PGE, to discern the intent of the legislature in

enacting a statute, the court first analyzes the statutory text and context, giving words

of common usage their plain, natural, and ordinary meaning. State ex rei. Dewberry

v. Kulongoski, 346 Or. 260, 270, 210 P.3d 884 (2009); PGE, 317 Or. at 610-11.

Under the PGE template, if the court found the text and context ambiguous, it would

then proceed to review the legislative history to determine the legislature's intent. Id.

at 611-612.

-16-

In 2001, the Oregon legislature amended ORS 174.020 by adding text directed

specifically to the court's consideration of legislative history. As amended, the statute

now provides:

"(1 )(a) In the construction of a statute, a court shall pursue the intention ofthe legislature if possible.

(b) To assist a court in its construction of a statute, a party may offer the legislative history of the statute.

(2) When a general and particular provision are inconsistent, the latter is paramount to the former so that a particular intent controls a general intent that is inconsistent with the particular intent.

(3) A court may limit its consideration of legislative history to the information that the parties provide to the court. A court shall give the weight to the legislative history that the court considers to be appropriate." (Or. Laws 2001, ch. 438 § 1, text in italics).

This Court interpreted the meaning of these 2001 amendments to ORS 174.020

in State v. Gaines, 346 Or. 160,206 P.3d 1042 (2009), beginning with the text and

context of the amendments, under the settled PGE methodology, and then considered,

"regardless of any ambiguity in the text, the legislative history pertaining to what the

legislature intended with the 2001 amendments to the statute." 346 Or. at 166. The

court considered the amendments to paragraph (l)(b) and subsection (3) to be

reasonably straightforward, and stated that they provided, in effect, for three things:

"First, a party is statutorily entitled, but not obligated, to offer the court legislative history. Second, the court permissibly may limit its consideration to that history; the court is not obligated to independently research legislative history. Third, the court may give whatever weight it deems appropriate to the legislative history that a party offers." Id.

In construing the text and context of a statute, ORS 174.010 further provides

that the court is "not to insert what has been omitted or omit what has been inserted;

-17-

and where there are several provisions or particulars such construction is, if possible,

to be adopted as will give effect to all." State v. Werdell, 340 Or. 590, 596, 136 P.3d

17 (2006) ( quoting statute). In construing a statute, the court will reject an

interpretation that would render a portion of the statute as meaningless surplusage.

Bolt v. Influence, Inc., 333 Or. 572, 581,43 P.3d 425 (2002).

Plaintiffs argue that the use of the words "insofar as" and "to the extent" III

modifying "possible" - "suggests that if a range of health insurance coverage is

available, local government is restricted to selecting the health insurance that provides

coverage to retirees over one that does not." (Opening Brief at 9). Nothing in the text

or context of243.303(2) restricts a local government's initial choice of health care

insurance coverage for its employees or officers. On the contrary, the text only

requires the local government to extend "that coverage" (currently made available to

employees) to retirees, "to the extent possible," i. e., recognizing that it may not be

possible for the local government to do so. Plaintiffs' "suggestion" calls for the court

to insert provisions into ORS 243.303(2), regarding the initial selection of employee

health care coverage, that the legislature omitted, which is prohibited by ORS

174.010.

Stated another way, ORS 243.303 does not dictate to any city any requirement

of whom the city must contract with for providing insurance to current employees.

Nowhere in ORS 243.303 is there a requirement that a city must contract with an

insurance company or trust that provides coverage for both current and retired

persons. If the Legislature had desired that result, it would have provided such a

requirement in the statute, such as: "The governing body of any local government

-18-

that contracts for or otherwise makes available health care insurance coverage for

officers and employees of the local government shall only contract with an insurance

company that makes that coverage available for any retired employee of the local

government .... " Thus, because there is no such mandate as to whom a city must

contract with for providing health care insurance, each city in Oregon, including the

City of Medford, can contract with any entity, trust, or insurance company to provide

health care benefits to its current employees regardless of any application of that

insurance to retired employees.

At best for the plaintiffs, the phrase "to the extent possible," following the

auxiliary verb "shall" creates ambiguity as to whether the statute imposes 1) a

'mandatory duty on local governments to obtain health care coverage from only those

insurers that will guarantee coverage not only for current employees and officers but

also for all retirees not yet eligible for Medicare, or 2) only a qualified duty to "make

* * * available" to retirees, if "possible," the same coverage that it makes available to

current employees. The local government's duty to provide "that coverage" to

retirees, "to the extent possible," is ambiguous because it is capable of more than one

reasonable construction, as set forth above. But even if the court were not to find this

level of ambiguity in the statute, it would still review the legislative history of ORS

243.303(2), along with its text and context, under ORS 174.020, as construed by

Gaines.

E. Legislative History of ORS 243.303(2).

The somewhat tortured course of this statute's legislative history demonstrates

that the legislature first recognized in 1981 that the use ofthe phrase "insofar as and

-19-

to the extent possible" undermined any mandatory effect ofthe auxiliary verb "shall"

before the term "make that coverage available," and created only permissive

legislation which authorized - but did not require local governments to extend

health care coverage to retirees who were not yet eligible for Medicare.

The original version ofORS 243.303 was adopted by the 1981 Legislative

Assembly. Or. Laws 1981, ch. 240 § 1. The legislation was proposed as House Bill

(HB) 3010, and first introduced to the House Committee on Intergovernmental Affairs

on April 22, 1981 by Rep. Shirley Gold. As initially proposed, the first sentence of

subsection (2) read:

"The governing body of any local government that contracts for or otherwise makes available health care insurance coverage for officers and employees of the local government shall, in so far as and to the extent possible, make that coverage available for retired officers and employees of the local government and for spouses and unmarried children under 18 years of age of those retired officers and employes." (Emphases supplied),

In her introductory comments before the committee, Rep. Gold explained that

HB 3010 "is desirable permissive legislation," intended to provide retirees with "this

option that would permit their former employers to continue to offer them

comprehensive group medical coverage." House Committee on Intergovernmental

Affairs, Apri122, 1981, State Archives Tape 87A (emphases supplied).

After completing the presentation of her written testimony to the committee,

Rep. Gold explained that "it's clear among us (i.e., the bill's sponsors) that * * * this

is a Bill which simply gives authority to local jurisdictions to do this sort of thing.

And there is a disclaimer, for instance, in lines 10 and 11 which says, 'insofar as and

to the extent possible '," Id., State Archive Tape 87 A (emphasis supplied). Rep. Gold

-20-

then explained that the provision was not mandating that local governments make the

same health care coverage available to retirees: "In fact you're doing the opposite -

you're giving the local * * * group * * * their autonomy to do together with their

employees what they feel is feasible to do. And that's the intent of this entire thing."

Id., State Archive Tape 87 A (emphases supplied). It is crucial to note at this juncture,

in light of comments made during the 1985 legislative session, that Rep. Gold made

these comments with respect to the original text ofthe bill which read - as does the

current version - "shall, insofar as and to the extent possible, make that coverage

available .... "

Roger Auerbach, President of the Oregon Federation of Teachers and also

President of the Oregon Federation of Public Employees, testified in favor of the bill.

When asked how the bill would impact coverage rates for those who have not retired,

Mr. Auerbach explained that coverage could be made available to retirees as a

separate group, or they could be included with active employees. Mr. Auerbach

concluded that, given the range of available options, "we are in favor of this Bill

because it does leave it up to the local jurisdiction to hammer out those details and to

look at what best suits their situation rather than making a mandate of any sort."

House Committee on Intergovernmental Affairs, April 22, 1981, State Archive Tape

86B (emphasis supplied).

Rep. Meyer then addressed whether the bill would require local governments

to provide retirees with health care coverage: "Well the mandate that I see - and * * *

I'd like to have a little explanation of it from Representative Gold because I think she

referred to this. On line 10, it says that the, if I read this correctly 'local government

-21-

shall make coverage available'." ld., State Archive Tape 86B. Rep. Gold then

explained:

"Well, however, * * * that's why I read to you in my original testimony the phrase that followed * * * the phrase 'insofar as and to the extent possible' wipes out the ·shall.' So * * * I don't know, how else to say that, * * * except that * * * ifit said 'local government shall make that coverage available' and that * * * other phrase was not in there then I'd say yes it's a mandate, but it's no mandate when [that phrase is there]." (Emphases supplied). ld., State Archive Tape 86B.

Vice-Chairperson Ryles then stated that it seemed to him "shall" could indicate

that the local government would have to offer retirees some kind of coverage, and

"the degree of how * * * it [was made] available to them is what, to me, the language

is permissive in." Rep. Gold responded that Mr. Lundy of the Legislative Counsel's

office had struggled with that when they were drafting this provision. "We wanted

the governing body to make this available, but we realized that * * * you're dealing

with insurance companies." ld., State Archive Tape 86B, emphasis supplied.

She explained they realized there could be "obstacles," not from the local

government's desires, but from the insurance companies providing the coverage.

"And so * * * the reason that he [i.e., Mr. Lundy] put [in] the 'insofar as and to the

extent possible' * * * was with the view * * * that these extraneous factors might

indeed make it impossible in some particular local situation to do this." ld., State

Archive Tape 86B (emphases supplied).

After discussion on whether "may" should replace "shall" before "to the extent

possible," Eric Parker, representing the Oregon Public Employees Union, testified

that it should remain "shall," so that:

-22-

"when the local government * * * puts forth its insurance proposal they would * * * request that those insurance * * * carriers who are responding to that proposal include retirees. Then the caveat 'insofar, and to the extent possible' would come in because * * * the carriers that chose to * * * respond to this bid might exclude retirees. Then I think that the local government has done [what] this legislation, as it is presently drawn [i.e., with "shall'], would require of them." House Committee on Intergovernmental Affairs, April 22, 1981, State Archives Tape 87B, emphasis supplied.

Robert Lundy of the Legislative CounsePs office later testified before the

committee, first addressing the definition of "health care" in the bill. Chairperson

Otto then turned to the use of the tenn "shall," and Rep. Gold indicated:

"line 10 * * * 'shall' and then 'insofar as and to the extent that's possible.' My testimony spoke to this being a permissive legislation, which would give the authority * * * to a local jurisdiction, and the Committee members had some question about the use of the word 'shall' in line 10 instead of the word 'may'." Id., Tape 87B (emphases supplied).

Mr. Lundy, of the Legislative Counsel's office, then explained:

"The 'shall' is of course substantially weakened * * * by the following clause that says 'insofar as and to the extent possible.' * * * one purpose of the Bill would be * * * if the argument is made the local government doesn't have the authority * * * to expand their insurance contracts to cover their retired person. But this would at least give them the authority to do so. * * * I would suspect in any particular situation, * * * even though the 'shall' were there * * * the permissive aspect of it is in the following clause. And the local government could say the statute requires us to do it, but only "insofar as and to the extent possible" and we hereby find that it is not possible * * * to do that."! Id., Tape 87B (emphases supplied).

After further discussion that the use of "may" would clarifY that the provision

was intended to be pennissive, and not mandatory, the House Intergovernmental

! Earlier in her testimony, Rep. Gold explained "[w]hen it comes to the legal * * * jargon, I just go by what * * * Legislative Council advises me." Id., State Archive Tape 86B.

-23-

Affairs Committee voted to amend HB 3010 by inserting "may" for "shall," so that

the first sentence of subsection (2) read:

"The governing body of any local government that contracts for or othenvise makes available health care insurance coverage for officers and employes of the local government may, in so far as and to the extent possible, make that coverage available for retired officers and employes of the local government * * * ."

The committee conducted a final work session on May 4, 1981, and sent amended HB

3010 to the floor with a "do pass" recommendation. Id., Tape 102B

Rep. Gold later testified before the Senate Committee on Local Government,

Urban Affairs and Housing, and presented the same introductory comments on

amended HB 3010 that she had presented before the House Committee. In response

to the first question from Chairperson Roberts, Rep. Gold confirmed that the duty

imposed by the bill on local governments was permissive, rather than mandatory.

Senate Committee on Local Government, Urban Affairs and Housing, June 1, 1981,

State Archives Tape 8SA. In response to a question from Sen. Simmons, as to

whether the bill was originally intended to be mandatory - i.e., before "shall" was

changed to "may" Rep. Gold replied "No * * * Senator Simmons, if I may. The bill

was never mandatory; it was always permissive. Id., Tape 8SA (emphases supplied).

After a follow-up question from Sen. Simmons to confirm that the provision

was "never meant to be mandatory," Rep. Gold explained that the language was:

"Never meant to be mandatory because if! may point out even where the word 'shall' was in originally, the phrase that followed it said 'shall, insofar as and to the extent possible;' and so even that 'shall' was not a mandate." Id., Tape 8SA (emphasis supplied).

-24-

When Sen. Simmons then stated that the bill, as amended with the word

"may," seemed to be "a toothless tiger that isn't necessary," Rep. Gold explained that

the provision was directed to those cities, counties and local districts, who may have

felt unable to offer this benefit before without the express authority to do so. "And so

the purpose of this would be to say to them that if you choose to do this, you may do

it." Id. (emphasis supplied).

The full Senate then passed HB 3010, as amended with "may" instead of

"shall" before the "to the extent possible" phrase. Senate Floor Proceedings, June 12,

1981, State Archives Tape 114B. The bill was approved by the governor on June 25,

1981, and ORS 243.303 took effect November 1, 1981, 90 days from the end of the

legislative session. Or. Laws 1981, ch. 240 § 1; Oregon Constitution, Article IV, § 28

(see Or. Laws 1981, VoL I, Foreword, p. iii).

During the 1983 Legislative Assembly, amended Senate Bill 136 included an

amendment to ORS 243.303(2), reinstating "shall" for "may" and adding a

requirement that the retiree elect such coverage. After passage by the House, the bill

passed on the Senate Floor. Senate Floor Proceedings, June 28, 1983, Tape 153B.

The governor eventually vetoed this proposed amendment to ORS 243.303.

During the 1985 Legislative Assembly, a similar amendment to ORS 243.303

was introduced as House Bill (HB) 2430. The text of this bill amended subsection (2)

to read:

"The governing body of any local government that contracts for or otherwise makes available health care insurance coverage for officers and employees of the local government shall, insofar as and to the extent possible, make that coverage available for any retired employee of the

-25-

local government who elects to participate in that coverage . ... " (New text in bold).

The House Committee on Intergovernmental Affairs conducted a work session

on HB 2420 on March 26, 1985, and took testimony in support ofthe bill from

witnesses including Don Satchell of the Oregon Education Association. After a

discussion between Chairperson Hill and the witnesses on the type of coverage to be

made available to retirees, Rep. Cease asked about the meaning of the phrase "insofar

as and to the extent that," in the original 1981 legislation. House Committee on

Intergovernmental Affairs, March 26, 1985, Tape 97.

Mr. Satchel responded: "That is the current law and I cannot explain it." Rep.

Cease then asked: "Whatever it means in current law, it would mean the same thing

here then?" Mr. Satchel replied: "That's right." House Committee on

Intergovernmental Affairs, March 26, 1985, Tape 97 (Emphases supplied).

Mr. Lundy, legislative counsel who testified with Rep. Gold during the 1981

committee sessions on HB 3010, also testified before this 1985 House committee.

Mr. Lundy explained that the provision regarding the local government providing

"reasonable terms and conditions of eligibility and coverage" was intended "to

provide some t1exibility to the local governments in trying to fit the retired people

into the coverage that is made available for the working employees * * * ofthe local

government. Id., Tape 97, emphasis supplied.

Chairperson Hill then asked Mr. Lundy about the significance of the term "that

coverage" in the phrase "shall, insofar as and to the extent possible, make that

coverage available." Mr. Lundy replied:

-26-

"It contemplates, with this flexible terminology, not only down below but that 'in so far and to the extent possible,' * * * that the insurance plan provided for the working employee would be the plan that covers the retired employee subject to whatever conditions they have to work out with the insurer on it for example,"

When asked for clarification about whether the plans for employees and

retirees would be identical, Mr, Lundy explained:

"It would mean the plan that is in existence * * * it would be the same only to the extent that they could provide the same coverage," [d., Tape 97, emphasis supplied.

Nothing in Mr. Lundy's explanation indicated that the statute, with the reinstatement

of "shall," would now compel local governments to obtain new health care coverage

from only those insurers that would guarantee continued coverage for retirees until

eligible for Medicare.

After adopting amendments directed to other sections of the bill, the House

committee approved the passage ofHB 2430, as amended. See 1985 House

Committee on Intergovernmental Affairs, State Archives Synopses of HB 2430 Work

Sessions. The full House adopted HB 2430, as amended, on April 4, 1981. House

Floor Session, Oregon State Archives, Reel 7, Track I.

Nothing in the testimony before the 1985 House committee demonstrates that

the phrase "to the extent possible" did not retain the same diluting effect on the

auxiliary verb "shall" preceding "make that coverage available," as discussed in the

House and Senate committees in 1981, both before and after the amendment to

HB 3010 that inserted "may" for "shall," as detailed above. On the contrary, the only

statements before the 1985 House committee demonstrate that the phrase continued to

mean exactly what it meant when first proposed in 1981.

-27-

HB 3010 was then read in the Senate and referred to the Senate Committee on

Business Housing and Finance, on April 4, 1985. This Senate committee added an

amendment (based on the House committee minority report) specifYing that an

election for such coverage occur within 60 days after the effective date of retirement.

Nothing in the testimony or discussions during this committee's hearings or work

sessions addressed the phrase "to the extent possible," retained from the original 1981

legislation. Senate Committee on Business Housing and Finance; April 16, 1985,

State Archives Tape 57B, and May 14, 1985, Tape 91A.

The Senate committee approved the amended bill, with a "do pass"

recommendation, on May 17, 1985. Sen. Cohen presented the bill on the Senate Floor

on May 22, 1985. During her comments, she referred to the qualifYing phrase

"insofar as and to the extent possible" with regard to the local government's duty to

make available to retirees the health care coverage that it makes available to

employees: "So that it does provide that * * * they may offer different packages * * *

for them * * * to pay for * * * as they go along." Senate Floor Proceedings, May 22,

1985, Tape 124B (Emphases supplied; Exhibit G, p. 2).

After referring to the portion of the amended bill which stated that the local

government "may pay none" of the cost of making such coverage available, or may

agree to pay part or all of the cost, Sen. Cohen added, "it is appropriate that we offer

an opportunity for people to pay their own way to the extent possible." Id., emphases

supplied. The Senate thus understood that the statute was intended to provide local

governments with options for providing continued health care for retirees.

-28-

Sen. Cohen thus acknowledged to the full Senate the qualifYing effect of the

phrase "insofar as and to the extent possible" on the local government's duty to "make

* * * available" that coverage which it makes available to current employees. Her

statements recognized that it might not be possible for local governments to provide

retirees the same health care coverage (i.e., that coverage) that was provided to their

employees. Nothing was said about compelling local governments to select new

employee health care coverage from only those insurers who would guarantee

continued coverage for retirees.

In fact, Sen. Cohen's statement in 1985 echoed the opening statement by Rep.

Gold, the sponsor ofHB 3010, before the 1981 House committee. When introducing

the original bill- which then read "shall," not "may" - she described it as "permissive

legislation," intended to provide retirees with "this option that would permit their

fonner employers to continue to offer them comprehensive group medical coverage."

House Committee on Intergovernmental Affairs, April 22, 1981, State Archives Tape

87 A (emphases supplied).

Nothing in Sen. Cohen's comments on the Senate Floor negated Rep. Gold's

explanation in 1981 that:

"the phrase' insofar as and to the extent possible' wipes out the 'shall,' and that there was 'no mandate,' as a result of the inclusion of the qualifYing phrase 'to the extent possible. '" Id., State Archive Tape 86B (emphases supplied).

Nor did Sen. Cohen's comments to the full Senate in 1985 contradict the

analysis by Mr. Lundy, Legislative Counsel, when he explained to the 1981

committee, on the same day that Rep. Gold testified:

-29-

"The 'shall' is of course substantially weakened * * * by the following clause that says 'insofar as and to the extent possible.' * * * [E]ven though the 'shall' were there * * * the permissive aspect of it is in the following clause." Id., Tape 87B (emphases supplied).

The legislative history leading to the adoption ofHB 3010 in 1981 and the

1985 amendments in HB 2430, read as a whole, demonstrates that the phrase "shall,

insofar as and to the extent possible, make that coverage available" was never

intended to impose a mandatory duty on local governments to select health care

coverage for their employees only from insurers who agreed to provide the same

coverage to retirees until eligible for Medicare. When the 1985 House Committee on

Intergovernmental Affairs addressed the intent behind retaining the phrase "insofar as

and to the extent possible," from the 1981 law, after the auxiliary verb "shall," the

committee considered that the phrase "would mean the same thing here" as it did in

when first proposed as part of HB 30 lOin 1981. The committee effectively

incorporated by reference the legislative history surrounding the introduction of the

original bill that first employed this phrase.

Nothing in the legislative history ofHB 2430 in 1985 demonstrates that the

legislature intended - by reinstating "shall" for "may" - to do anything more than

return to the original meaning of the phrase "shall, insofar as and to the extent

possible, make that coverage available," as first proposed by Rep. Gold as part of

HB 3010 in 1981. The testimony at that time from both Rep. Gold and Mr. Lundy,

legislative counsel, was unequivocal that the phrase "insofar as and to the extent

possible" negated any presumed mandatory effect from the use of the auxiliary verb

"shall," and created permissive legislation intended to provide retirees with an option

-30-

that would permit their former employers to offer them continued group health care

coverage as a "bridge" to Medicare coverage.

F. Lack of Enforcement Provisions in ORS 243.303 or Anywhere Else.

At the first level of PGE analysis, the court also considers the context of a

statute. Along these lines, one crucial factor to look at is what ORS 243.303 does not

include - any mechanism for its enforcement.

Nothing in ORS 243.303, or its accompanying provisions, or its legislative

history, or any other Oregon Revised Statute creates a private right of action, civil or

otherwise, for anyone to enforce its provisions. See Quail Hollow West Owners Asps'

v. Brownstone Quail Hollow, LLC, 206 Or. App. 321,336-37, 136 P.3d 1139 (2006)

(finding that homeowners association lacked statutory authority to sue developers on

behalf of individual members, relying in part on the lack of statutory context

indicating that the legislature intended a reference to "enforcement" of association

governing documents to mean something other than what it ordinarily means).

Moreover, there are no criminal sanctions or civil fines imposed for a breach of any of

the obligations set forth in ORS 243.303(2).

The lack of any enforcement provisions accompanying the text of

ORS 243.303 undermines plaintiffs' argument that this statute imposes a mandatory

duty on local governments to obtain health care coverage for their employees only

from insurers who will also provide "that coverage" to retirees until eligible for

Medicare. The lack of enforcement provisions demonstrates that ORS 243.303 is

permissive, not mandatory, and is consistent with the testimony of Rep. Gold, the

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sponsor ofthe original bill that contained the phrase "shall, insofar as and to the

extent possible, make that coverage available."

G. ORS 243.303(2) Does Not Govern Selection of Employee Health Care Coverage.

The text, context, and legislative history of the phrase "shall, to the extent

possible, make that coverage available," demonstrates that ORS 243.303(2) has a

permissive not mandatory - effect, because whether the same coverage is available to

both current and retired employees is dependant upon the insurance company providing

the insurance to the current employees. From the very start, the legislature recognized

that the local government's ability to extend this benefit to retirees was not unilateral,

but depended on the dictates ofthe insurer providing the existing employee coverage.

As Rep. Gold explained, when she and Mr. Lundy were drafting the original

text ofHB 3010, "we realized that * * * you're dealing with insurance companies,"

and there could be "obstacles" from the insurance companies providing the health

care coverage; therefore, the reason for including "insofar as and to the extent

possible" was to recognize "that these extraneous factors might indeed make it

impossible in some particular local situation to do this." House Committee on

Intergovernmental Affairs, April 22, 1981, State Archive Tape 86B (emphasis

supplied). Moreover, when Eric Parker testified that same day, on behalf of the

Oregon Public Employees Union, regarding the original text ofHB 3010 which still

included "shall" he expressly acknowledged that health care insurance carriers who

responded to coverage proposals from local governments "might exclude retirees."

Id., Tape 87B.

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When the auxiliary verb "shall" was replaced before the phrase "insofar as

and to the extent possible, make that coverage available" in the 1985 amendments,

Mr. Lundy confirmed that the "flexible terminology" in the bill meant that the plan

"in existence" for the local government's employees would be the plan that covers

retirees, but "only to the extent that [the existing plan] could provide the same

coverage." House Committee on Intergovernmental Affairs, March 26, 1985, Tape

97. Nothing in his comments evinced a legislative intent to compel local governments

to obtain employee health care coverage only from insurers who would guarantee to

extend such coverage to retirees until the retiree was eligible for Medicare.

This legislative history directly refutes plaintiffs' assertion that the phrase

"insofar as and to the extent possible" in ORS 243.303 restricts local government

discretion "to selecting the health insurance that provides coverage to retirees over

one that does not." (Opening Brief at 25). On the contrary, this language in the

current statute - identical to that in HB 3010 as original proposed in 1981 - was

included to recognize that it may not always be possible for local governments to

continue to make available "that coverage" to the current employee when he or she

retired.

IfORS 243.303(2) compelled local governments to select employee health

coverage only from an insurer "that provides coverage to retirees," then there would

be no question whether it would be "possible" for the local government to "make that

coverage available" to retirees - it would be a "certainty," based on the mandatory

"pre-selection" criteria. In other words, if the statute means a city can only purchase

insurance from an insure that covers both current and retired person, then that is the

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only insurance that would be purchased. Plaintiffs' proposed construction renders the

entire phrase, "shall, insofar as and to the extent possible, make that coverage

available for any retired employee" into unnecessary surplusage, because the

availability of such coverage would already be a "done deal." A construction that

relegates a section of a statute to mere surplusage negates this Court's stated goal of

giving effect to every provision of a statute. State ex reI Dept. o/Transp. v. Stallcup,

341 Or. 93, 101, 138 P.3d 9 (2006) (quoting Quintero v. Board a/Parole, 329 Or.

319,324,986 P.2d 575 (1999)).

Contrary to their argument, it is plaintiffs who are inserting provisions into

ORS 243.303(2) that the legislature omitted, by transfonning it into a pre-selection

restriction on the City's ability to obtain health care coverage for its current

employees. The legislature never intended to have the "tail" (retiree coverage) wag

the "dog" (the best and most cost effective insurance for current employees).

As the Ninth Circuit Court of Appeals explained in its opinion:

"Before 1990, the City pennitted all employees to elect to continue their health insurance coverage upon retirement. In 1990, however, the City negotiated with its police officers' union for a health insurance program that did not give officers the opportunity to continue coverage after retirement. In 2001, the City placed all of its management-level employees under that same health insurance program, which does not cover retirees. In 2002, the City placed its non-management employees in both its Parks and Recreation Department and Public Works Department in the same program.

The City contracts with the Oregon Teamsters Employers Trust to provide health insurance to its employees. The Teamsters' contract with the City states: '[P]articipants are not allowed to participate in the Trust's Retiree Plan or any insured or HMO option available through it.' This provision means that retirees are excluded from coverage under the Teamsters' plan. The members of the Teamsters are responsible for voting on the extent of coverage. According to the City, the Teamsters

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were 'willing' to provide health insurance benefits to retired employees, but only 'if the members of the Teamsters voted for such coverage.' To date, the members of the Teamsters have not approved an extension of health insurance benefits to retirees.

Although the City does not provide health insurance coverage after retirement, retirees can choose to remain covered for 18 months after their retirement under the Consolidated Omnibus Budget Reconciliation Act of 1985. After that 18-month period expires, retired employees can enroll in the Oregon Public Employees Retirement System Health Insurance Program, into which the City has paid so that its retired employees can obtain coverage." Doyle v City of Medford, 565 F.3d 536, 539 (9th Cir. 2009) (ER-7 to ER-8).

The bargaining unit that entered into these agreements with the City of

Medford had exclusive authority to negotiate for the health care benefits that would

be provided to its union employees. Under the Public Employee Collective

Bargaining Act (PECBA), an employer's duty to bargain collectively in good faith

extends to mandatory subjects for bargaining. ORS 243.672(l)(e). ME v. Board of

Higher Education, 31 Or. App. 251,255, 570 P.2d 388 (1977). These mandatory

subjects include matters of employment relations, namely direct and indirect

monetary benefits, hours, vacations, sick leave, grievance procedures and other

conditions of employment. ORS 243.650(7)(a); Assoc. of Oregon Corrections

Employees v. Dept. of Corrections, 213 Or. App. 648, 662, 164 P.3d 291 (2007); see

also ME, 31 Or. App. at 251; citing Springfield Ed. Assn. v. Sch. Dist., 24 Or. App.

751, 756, 547 P.2d 647 (1976).

Employee health insurance falls within the ambit of mandatory subjects of

collective bargaining under PECBA because it is an indirect monetary benefit and,

thus, is a mandatory subject of bargaining. ORS 243.650(7)(a). Service Employees

Int'l Union Local 503 v. DAS, 183 Or. App. 594, 598, 54 P.3d 1043 (2002). A public

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employer is required to bargain over a proposal concerning a mandatory subject of

bargaining, such as employee health care, even ifthere are statutory constraints on the

employer concerning that subject, such as plaintiffs' construction ofORS 243.303(2)

in this case. Id. at 60 I.

By agreeing to the current OTET plan, the bargaining unit authorized to act on

behalf of the employees accepted coverage that could not be "made available" to

retirees, under the terms of ORS 243.303(2) without a vote. If an individual

employee had been dissatisfied with that decision, such an employee could have filed

a complaint with the Employment Relations Board, under ORS 243.672(3).

Exclusive jurisdiction for such a dispute rests with the Employment Relations

Board, under ORS 243.676, and neither this Court nor the Ninth Circuit would have

any jurisdiction over these issues. Ahern v. Oregon Public Employees Union, 329 Or.

428,988 P.2d 364 (1999). The legislature did not incorporate any enforcement

provisions into ORS 243.303 that would authorize an employee to bring a private

cause of action to invalidate the City's selection of a health care benefits program

following a collective bargaining process.

Furthermore, the union plaintiffs obtained the insurance they bargained for.

Nothing in ORS 243.303 requires a retired person to take the insurance referred to in

ORS 243.303. That is, at the end of the 60-day period referred to in ORS 243.303, the

retired employee does not have to take the insurance offered, and simply can say "no

thanks." ORS 243.303 does not make it mandatory upon any employee to accept

retiree coverage for the exact same insurance that retired employee had when he or

she was a current employee. Stated another way, it is up to each employee of every

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city to make the decision as to whether he or she wants to have the same insurance

they had when they were current employees, including the decision to pay the

premium required. And, there is nothing in the ORS 243.303 that provides that a

current employee cannot make the decision to forgo the insurance referenced in ORS

243.303 before he or she retires. That is, the benefits ofORS 243.303 can be

relinquished by the public employee at any time during his employment; and such

employee can bargain away those benefits in a collective bargaining agreement. It is

the current employees sole right to decide what coverage he wants when he retires.

The employee can say five years before he retires, "no thanks," or the employee can

make the decision 60 days after he retires, and say "no thanks." This right to

relinquish illustrates the permissive nature ofORS 243.303, and the fact it was

relinquished as a result of collective bargaining confirms the permissive nature of the

statute.

Plaintiffs' construction ofORS 243.303(2) i.e., that the City must obtain

health care "insurance coverage" from only insurers who agree to make the same

coverage available to retirees - would thus invalidate the entire coverage program that

the City negotiated with the Teamsters from 1991 to date, and under which

management employees have received benefits from 2001. Each of these employees

saved their own money by keeping the premiums below the financial caps, and the

copayments to a minimum. Are the plaintiffs now willing to give the money back that

they saved?

Moreover, ORS 243.303 only applies to "health care insurance coverage" that

a local government contracts for or otherwise makes available to its employees. It is

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undisputed in the case before the Ninth Circuit that the Oregon Teamsters Employee

Trust (OTET) is not an insurance company, and the plaintiffs have never taken the

position that the trust constitutes an insurance company. Plaintiffs' proposed

construction of ORS 243.303 again calls for this Court to insert terms into the statute

that the legislature omitted, contrary to the mandate in ORS 174.010.

H. Preemption by ERISA.

Because plaintiffs' construction ofORS 243.303 would invalidate the OTET

program that provides health care benefits to the employees ofthe City, and compel

the selection of a new benefit program, such a construction would conflict with, and

be pre-empted by, the Employee Retirement Income Security Act (ERISA).

The purpose of ERISA is to provide a uniform regulatory regime over

employee benefit plans. Aetna Health Inc. v. Davila, 542 U.S. 200, 208, 124 S. Ct.

2488, 159 L.Ed.2d 312 (2004). ERISA governs "employee benefit plans," which

includes an "employee welfare benefit plan," under 29 U.S.c. § 1002(3). The term

"employee welfare benefit plan" is defined to include:

"any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintainedfor the purpose of pro viding for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits .... " 29 U.S.c. § 1002(1) (emphases supplied).

The ERISA preemption provision, 29 U.S.C. § I 144(a) (§ 514(a) of the

ERISA Act), provides, in part:

"[T]he provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section

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1003(a) of this title and not exempt under section 1003(b) of this title." Shaw v. PACC Health Plan, Inc., 322 Or. 392, 400,908 P.2d 308 (1995) (quoting and supplying emphasis to statute).

29 U.S.C. § 1003(b) states, in part:

"The provisions ofthis subchapter shall not apply to any employee benefit plan if-

(1) such plan is a governmental plan (as defined in section 1002(32) of this title);"

29 U.S.C. § 1003(32) states, in part:

"The term 'governmental plan' means a plan established or maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing."

In the present case, the Ninth Circuit found:

"The City contracts with the Oregon Teamsters Employers Trust to provide health insurance to its employees. The Teamsters' contract with the City states: '[P]articipants are not allowed to participate in the Trust's Retiree Plan or any insured or HMO option available through it.' This provision means that retirees are excluded from coverage under the Teamsters' plan. The members of the Teamsters are responsiblefor voting on the extent of coverage. * * * * To date, the members of the Teamsters have not approved an extension of health insurance benefits to retirees." Doyle, 565 F.3d at 539 (emphases supplied).

The Oregon Teamsters Employers Trust [OTET] is a self-funded ERISA-

regulated employee benefit plan that is established and maintained by the Trustees of

OTET, not the City of Medford (or any other governmental entity), under the terms of

"Article I, Declaration of Trust" ofthe "Trust Agreement Governing a Joint Labor

Management Employee Welfare Benefit Trust Fund known as the Oregon teamsters

Employers Trust." (SER-25).

Article I provides that "[t]he Trustees may hold property, enter into contracts,

and in all matters act in behalf of the Trust Fund in such name." (ld., emphasis

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supplied) Article III defines, and sets forth the duties of, "The Trustees," and

provides, in part:

"The Trust Fund and the employee welfare benefit plans shall be administered by a Board of Trustees composed equally of Employer Trustees and Labor Organization Trustees.

* * * For purposes of complying with the various provisions of the employee Retirement Income Security Act of 1974 [ERISA] the Trustees shall be considered as 'named fiduciaries,' 'fiduciaries,' the 'plan administrator,' and the 'plan sponsor,' as those terms are used in the Act [ERISA]." (SER-26, emphases supplied).

Article VI defines "Trustee Responsibilities," and provides, in part:

"1. General Duty - Receipt of Contributions and Creation and Administration of Benefit Plans

It shall be the general duty of the Trustees to receive the contributions from participating employers and the contributions from participating employees (if any) and any other income or assets that they may receive and, with such, to create and administer one or more employee welfare benefit plans for the participating employees and their beneficiaries.

* * * * 4. Application of Trust Fund Assets

As required by Section 403(c)(l) of [ERISA], the assets of the Trust Fund shall never inure to the benefit of any participating employer and shall be held for the exclusive purposes of providing benefits to participating employees and their beneficiaries and defraying reasonable expenses of administrating the plan.

5. Fiduciary Standards

As required by Section 404(a)(l)(A) and (B) of [ERISA], the Trustees shall discharge their duties solely in the interest of the participating employees and their beneficiaries and for the exclusive purpose of (aJ providing benefits to participating employees and their beneficiaries and (b) defraying reasonable expenses of benefit plan administration.

* * * *

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13. Plan Description

The Trustees shall prepare and file with the Department of Labor a plan description, a summary plan description and any modifications or changes in the information contained in such description, * * *, as required by Section 102 of [ERISA]. * * *

14. Annual Report

The Trustees shall prepare and file with the Department of Labor an annual reports, as required by Section 103 of [ERISA]. The Trustees shall also furnish to participating employees and to each beneficiary receiving benefits portions of the annual reports as required by Section 104(b)(3) of such Act." (SER-29 to SER-31). (Emphasis supplied).

Additional references to the duties that the Trustees must fulfill, and the

limitations of their liabilities, in compliance with ERISA appear throughout the

remaining articles of the OTET Trust Agreement. (SER-32 to SER-37). All of this

information confirms that OTET is not a "governmental plan," under 29 U.S.C.

§ 1003(32), because the Trustees are solely responsible for establishing and

maintaining OTET as an employee welfare benefit plan under ERISA. Moreover,

nothing in the Trust document requires the participation of any governmental unit for

its establishment and maintenance. The fact that the City entered into an agreement

with the OTET Trustees for the provision of health care benefits to City employees in

no way establishes that OTET, as an ERISA plan was "established or maintained" by

the City.

"A law 'relate[s] to' a covered employee benefit plan for purposes of § 514(a)

[29 U.S.C. § I 144(a)] if it [1] has a connection with or [2] reference to such a plan."

Cal. Div. of Labor Standards Enforcement v. Dillingham Constr., NA., Inc.

("Dillingham "), 519 U.S. 316, 324, 117 S. Ct. 832, 136 L.Ed.2d 791 (1997)

(alterations in original; some internal quotation marks omitted).

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A state law will "refer to" an ERISA plan in a way that results in preemption:

"[w]here a State's law acts immediately and exclusively upon ERISA plans, as in Mackey lv. Lanier Collection Agency, 486 U.S. 825, 108 S. Ct. 2182,100 L.Ed.2d 836 (1988)], or where the existence of ERISA plans is essential to the law's operation, as in [District of Columbia v.] Greater Washington Bd. ofTrade[, 506 U.S. 125, 113 S. Ct. 580, 121 L.Ed.2d 513 (1992),] and Ingersoll-Rand [Co. v. McClendon, 498 U.S. 133, III S. Ct. 478,112 L.Ed.2d 474 (1990)] * * *." Dillingham, 519 U.S. at 325; as quoted in International Broth. ofElec. Workers Local No. 48 v. Oregon Steel, 168 Or. App. 101, 111,5 P.3d 1122 (2000).

In the present case, the Ninth Circuit found that, in 1990:

"the City negotiated with its police officers' union for a health insurance program that did not give officers the opportunity to continue coverage after retirement. In 200 I, the City placed all of its management-level employees under that same health insurance program, which does not cover retirees. In 2002, the City placed its non-management employees in both its Parks and Recreation Department and Public Works Department in the same program.

The City contracts with the Oregon Teamsters Employers Trust to provide health insurance to its employees." Doyle, 565 F.3d at 539 (emphases supplied).

The Ninth Circuit's fmdings demonstrate that the current OTET plan

constitutes an "employee welfare benefit plan" (and thus, an "employee benefit plan")

because it is a "program * * * for the purpose of providing for its participants or their

beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical,

or hospital care or benefits ..... " 29 U.S.C. § 1002(1) (emphases supplied). ERISA

preempts "any and all State laws insofar as they may now or hereafter relate to any

employee benefit plan." 29 U.S.C. § 1 I 44(a). As the U.S. Supreme Court has

explained: '" [W]e have virtually taken it for granted that state laws which are

'specifically designed to affect employee benefit plans' are pre-empted under §

5l4(a). [29 U.S.C. § 1I44(a)].'" Ingersoll-Rand Co. v. McClendon, 498 U.S. 133,

-42-

140, 111 S. Ct. 478, 112 L.Ed.2d 474 (1990) (quoting Mackey, 486 U.S. at 829); see

discussion in Liberty Northwest Insurance Corp. v. Kemp, 192 Or. App. 181, 190-91,

85 P.3d 871 (2004).

Plaintiffs argue that under ORS 243.303(2), "local govermnent discretion is

restricted to selecting the health insurance [for employees] that provides coverage to

retirees over one that does not" if a range of options is available. (Opening Brief at

25). Under this construction, ORS 243.303(2) would directly encroach on the

relationship "between plan and employer," as well as "between employer and

employee" (because it restricts the choice of "employee benefit plans"), under the

Ninth Circuit's "relationship test." See Gen. Am. Life Ins. Co. v. Castonguay,

984 F .2d 1518, 1521 (9th Cir. 1993) (recognizing that the statute comprehensively

regulates certain relationships, e.g., the relationship between plan and employer, and

between employer and employee, to the extent an employee benefit plan is involved).

As the Ninth Circuit emphasized, "[b]ecause of ERISA's explicit language, [citation

omitted], and because state laws regulating these relationships (or the obligations

flowing from these relationships) are particularly likely to interfere with ERISA's

scheme, these laws are presumptively preempted." Castonguay, 984 F .2d at 1521.

The Ninth Circuit relied on and supplemented the Castonguay "relationship

test" in Arizona State Carpenters Pension Trust Fund v. Citibank, (Arizona), 125 F.3d

715, 722 (9th Cir. 1997). The court formulated a test emphasizing three traditional

areas identified as preempted by the U.S. Supreme Court in New York State

Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645,

657,115 S. Ct. 1671, 131 L.Ed.2d 695 (1995):

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"(1) 'state laws that mandate ... employee benefit structures or their administration'; (2) 'state laws that bind employers or plan administrators to particular choices or preclude uniform administrative practice, thereby functioning as a regulation of an ERISA plan itself'; and (3) 'state laws providing alternate enforcement mechanisms for employees to obtain ERISA plan benefits." Arizona State Carpenters, 125 F.3d at 723 (emphasis supplied) (quoting from Travelers, 514 U.S. at 658-59, 115 S. Ct. at 1678-79, as summarized in Coyne & Delany Co. v. Selman, 98 F.3d 1457 (4th Cir. 1996)).

In a more recent case arising in Oregon, the Ninth Circuit explained that

without federal preemption, "plan administrators would be held to a mUltiplicity of

state standards when they decide how to structure ERISA plans and select service

providers for those plans. [Footnote omitted]. That is precisely the situation

Congress sought to avoid when it passed ERISA and prescribed the broad preemption

clause." Bui v. American Telephone & Telegraph Co., Inc., 310 F.3d 1143, 1151 (9th

Cir. 2002) (emphases supplied); see also Rutledge v. Seyfarth, Shaw, Fairweather &

Geraldson, 201 F.3d 1212, 1217 (9th Cir. 2000) (stating that ERISA preempts "state

laws that bind employers or plan administrators to particular choices or preclude

uniform administrative practice") (internal quotation marks and citation omitted).

This Court should reject plaintiffs' construction ofORS 243.303 that would

bind the City to particular choices of "employee benefit plans," and invalidate the

City's selection of OTET, because it would result in preemption by ERISA, in whole

or in part. Where possible, the court will adopt a construction of a statute that will

give effect to all of its provisions, under ORS 174.010, and one that will not render

the statute unlawful or preempted because of the existence of federal law or other

statutes. Thomas Creek Lumber and Log Co. v. Department of Revenue, 344 Or. 131,

137-38, 178 P.3d 217 (2008) (quoting statute). This Court will not read statutes in

-44-

context in a way that "renders one statute ineffective." Central Catholic Educ. Ass 'n.

v. Archdiocese of Portland, 323 Or. 238, 243, 916 P.2d 303 (1996) (quoting Vaughn

v. Pacific Northwest Bell Telephone, 289 Or. 73, 83,611 P.2d 281 (1980)).

I. PERS is the Only Statutory Contract Binding Upon the City.

This Court has made it clear that PERS was intended to be and is a contract

between the state and its political subdivisions (Le. cities) and public employees.

Hughes v. State of Oregon, 314 Or. 1,25,838 P.2d 1018 (1992). PERS provides

health care benefits to retirees. Thus, the City of Medford has a contractual obligation

with its employees to provide the PERS health care benefits to the employees when

they retire. ORS 238.410, 238.420, OAR 459-035-0000, OAR 459-035-0020, OAR

459-035-0070, and OAR 459-035-0200.

The plaintiffs contend that ORS 243.303 is yet another statutory contract that

the City must comply with. So what we have is first, the City has a statutory contract

to contribute money into the PERS program so that PERS can contract with a health

care provider to provide retirees with health care benefits. Then, second, we have the

collective bargaining laws of the State of Oregon that require the City to comply with

collective bargaining agreements relating to health care benefits. Then, third,

according to the plaintiffs, the legislative passed ORS 243.303 which is binding upon

the City as another statutory contract that requires the City to provide retirees

coverage, the same coverage that is being provided to current employees. Just how

many contracts must the City comply with on the topic of health care coverage to

retirees? Requiring the City to comply with two statutory contracts to provide health

care benefits to retirees is nonsensical, and a waste of money and resources. Thus, to

-45-

avoid such a result, it is clear that ORS 243.303 was never meant to be a binding

statutory contract between a city and its employees.

Finally, it is apparent that ORS 243.303 does not amount to a statutory

contract. Nothing in the legislative history reflect a recognition that the legislature

intended and understood that ORS 243.303 constituted an offer by a City for a

unilateral contract between the City and its employees. Because the plaintiffs are

taking the position that ORS 243.303 is state legislation that amounts to a contract,

such a contract will not be inferred from that legislation, unless the legislature

unambiguously expressed an intention to create a contract. Eckles v. State of Oregon,

306 Or. 380, 760 P.2d 846 (1988); Campbell v. Aldrich, 1 59 Or. 208, 79 P.2d 257

(1938). In the case at bar, the legislature did not unambiguously express an intention

to create a contract between the City of Medford and its employees.

V. Conclusion.

Nothing in the text or context ofORS 243.303, nor in its legislative history,

limits the discretion of local governments in selecting the provider of health care

coverage for its current employees. The statute therefore "confers" total discretion

upon local governments to pick the best and most cost effective insurance or benefit

plan for its current employees.

If the provider of the health care benefits offers current employees the option

of extending the same coverage to the employee when he or she retires, then the local

government complies with the statute. On the other hand, if the provider ofthe health

care benefits does not offer current employees the option of extending the same

-46-

coverage to the employee when her or she retired, then it is not possible for local

government to comply with the statute.

Local governments' discretion "whether or not to provide health insurance

coverage to their employees after retirement" is wholly determined by the discretion

they exercise in selecting a health care insurer or plan to provide benefits to their

current employees, and ORS 243.303(2) imposes no restrictions on that discretion.

ORS 243.303(2) is permissive legislation, leaving total discretion to cities,

working with their current employees and the unions, to make the determination of

what constitutes the best health benefit plan to be provided to its current employees.

This determination is made with the understanding that once the best and most cost

effective health care benefits are provided to current employees, then, to the extent

possible, this same coverage will also be provided to the current employee when he or

she retires. The statute leaves the decision of what is the best plan available to the

current employees, to the cities, the unions, and the current employees, exactly where

such decision needs to remain; because these are the people and organizations that

pay for such benefits, these are the people and organizations that use such benefits,

and these are the people and organizations that are required to negotiate for such

benefits.

DATED: Monday, August 24,2009.

lsi Robert E. Franz, Jr. LAW OFFICE OF ROBERT E. FRANZ, JR. Robert E. Franz, Jr. OSB #73091

Of Attorneys for Defendants-Respondents City of Medford and Michael Dyal

CERTIFICATE OF SERVICE

I hereby certifY that I served the foregoing ANSWERING BRIEF OF

DEFENDANTS-RESPONDENTS AND SUPPLEMENTAL EXCERPT OF RECORD

on Stephen L. Brischetto and George P. Fisher, of attorneys for Plaintiffs-Appellants by

depositing two true, full and exact copies of said Answering Brief and Supplemental

Excerpt of Record in the United States mail in Springfield, Oregon, on Monday,

August 24, 2009, enclosed in a sealed envelope, with postage paid and addressed to:

Mr. Stephen L. Brischetto Attorney at Law 621 SW Morrison Street, Ste. 1025 Portland, OR 97205

Of Attorneys for Plaintiffs-Appellants

Mr. George P. Fisher Attorney at Law 3635 S.W. Dosch Road Portland, OR 97239

Of Attorneys for Plaintiffs-Appellants

DATED: Monday, August 24,2009.

lsi Robert E. Franz, Jr. LA W OFFICE OF ROBERT E. FRANZ, JR. Robert E. Franz, Jr. OSB #73091 P.O. Box 62 Springfield, Oregon 97477 E-Mail: robertfranz@qwestoffice.net Telephone: (541) 741-8220 Facsimile: (541) 741-8234

Of Attorneys for Defendants-Respondents City of Medford and Michael Dyal

"

CERTIFICATION OF TRUE COpy

I, Robert E. Franz, Jr., of attorneys for Defendants-Respondents City of

Medford and Michael Dyal, hereby certifY that the foregoing copy of the Answering

Brief of Defendants-Respondents and Supplemental Excerpt of Record is a true,

exact, and full copy of the original.

DATED: Monday, August 24,2009.

-Lfi vv vr r lLt vr KVtn::,Kl h. l'RANZ, JR. Robert E. Franz, Jr. OSB #73091 Of Attorneys for Defendants-Respondents City of Medford and Michael Dyal